The 2 Flavours of B2B
In Episode 1 of The eCommerce Experience, Andrew explains the different flavours of B2B, how to work out which you are, and why understanding the difference is so important.
Welcome to The eCommerce Experience - the podcast that turns YOU into an eCommerce expert. Your host, Andrew Rogencamp, shares his wealth of B2B and B2C business experience to take you on an eCommerce adventure.
Each month you'll hear from industry experts and meet people just like you - looking to take their business to new heights online.
Andrew:Hi there. I'm Andrew Rogencamp, welcome to the show. This week, what I want to talk about as a kick-off is really that there's two flavours of B2B eCommerce. It's going to be a B2B slant this week. So, if you're a B2B nut, you might want to think about how this affects your business as well.
But often, people just talk about B2B - they don't realize that there's actually two different flavours of B2B. So, I'm going to dive into that and I hope you enjoy it.
I guess the big question is why do we need to distinguish between two types of B2B? Isn't B2B just B2B? Well, once you listen to what the two different types are, you'll understand that the way you offer your eCommerce functionality, the way the website looks, the way you send out email marketing, that it's pretty important that you understand what type of B2B you actually are.
B2B for Manufacturing and Distribution
So, the first type of B2B I want to talk about is one I call B2B MD and that's B2B for Manufacturing and Distribution. So, typically, B2B MD involves the sale of a product from one company to another. Of course, that's the B2B part; business to business. But what this is, is where the business buying the products are going to then on-sell those products.
- So, an example might be a tool manufacturer that sells its tools to a tool shop or a retailer, for example, selling tools to Bunnings, who then are going to sell it onto the public. They might sell that in-store or on their B2C website.
- Or an importer of security monitoring equipment that's going to sell those cameras to installers, that then sell it as part of an installation package and part of a service they provide to their customers.
- And another example - a distributor of printers, for instance, that sell their products to a large Office Products supplier who then are going to sell them on to maybe other businesses for use in their business or sell them on to the general public, to the consumer.
But the key here is the buyer of the product is buying it for the purpose of reselling it. So, they want to buy the products, in most cases, they're going to buy it using a purchase order. They're going to do that, sending you an email, PDF attachment or an EDI order. Or if you're lucky, they'll get on your eCommerce store and use your eCommerce store to purchase it.
Why do they want to use a purchase order? Because they've got ERP systems and software, or at least, retail point of sale systems, and they want to inventorise those products. They want to know how many they've got on hand, how many they've purchased, what they've purchased them for and so forth. So, they've got to track that sort of stuff, the same way you as a B2B wholesaler or manufacturer, need to track that stuff.
So, they're going to want to use your website to do several things. They're going to want to do it to
- check availability
- check product specs
- pay their account
- buy products (as I said, if you're lucky)
- track orders
- track rebates
- do returns
- pass on to their customers to check product specs
- download price lists
...and a whole lot of other functions that these B2B manufactures and distributing model are going to want to do on your website.
So, we had a bit of a look at our customer base and we've got heaps of these customers. We mainly deal in the enterprise level of town. So, our customers (and if you listen to this podcast in the States, you'll think these numbers are small), but our customers are turning over anywhere between 10 million and 500, $600 million a year. And that's what we call an enterprise-level customer. So, they're pretty serious about what they're doing. They've got ERP systems such as SAP, Epicore, Pronto, those sorts of things.
So, they're not a small company. They're not what we call mums and pops. These are the big end of town, or at least the medium end of town that are selling.
So, we had a look at these customers and we thought, “Let's have a look at the percentage of orders that they received.” And the reality is it's not high in a lot of them. And there's a couple of reasons for that. But first of all, what I'd like to do is break up these customers into three groups:
1. So, there's the first group and that's what I call The Big Guys. That's the big end of town. They're the Bunnings of the world. They're the massive retailers. They're buying their products and they're typically making the supply using EOI to take those orders.
So, the chances of them actually getting on your website to do many things are low. Often, companies like Bunnings and Coles and Woolworths and stuff like that are not only going to order off your EDI, they're actually going to make your own people go into their stores and do the merchandising and work out what they want to reorder. So, it's very much a scenario where they're controlling the relationship.
I'm sure everybody's got some of these customers or you'd hope you'd have some of these customers. But you recognize those massive customers. And sometimes, there's low margin in selling those customers, but they're a necessary evil for that turnover and allow you to have that buying power that you can get by having that much volume.
So, we find it pretty unusual that this type of customer is going to order online. They've really got no reason to do it. They're going to send you an EDI order or they're going to get your reps to enter the order for you. They're just too big for anything else.
But if they're ordering EDI, that's good. It's still eCommerce; just it means that you don't have to enter the order. That's what you want. You get order accuracy or speed of order and stuff like that.
So, just because it's not going through your website, if it's going through eCommerce, to me, that's just as good as going through your website. The key is efficiency and electronic.
You know, if you think about EDI, EDI was the actual first version of eCommerce back in the mid-80s. And to be honest, it hasn't changed a lot since then. Some of their files are still Edifact files which are really text based files. Obviously, a lot of files now are formats like cXML and JSON, but yes, still EDI is a good way to transact.
So, they are the big guys.
2. Then you've then got the small customers. So, these are those small guys that are ordering off you. They may be running their own businesses. They may be repair businesses. And they're going to on sell those businesses. They may not care as much about that inventorisation as the big guys and the middle guys that I'll talk about shortly, because often they're just ordering those products to consume in a service job.
I guess a great example of that is a pump repair business. You know, Bob Smith runs his pump repair business and he's constantly buying new pumps and spare parts for the various suppliers for what he's repairing for his customers.
So, he doesn't really use an ERP system. He might be using some off-the-shelf software that he's got online or something like that. But as I said, inventory management is probably not at the top of his priority list.
So, what he wants to do is he wants to get online and order those products. And that's normally the way you're going to get your 20 percent of customers ordering online. It's normally going to be these types of customers that are ordering online.
I'll give you a good example.
We actually had a fridge repair done here to my fridge in my own home. And at the end of the repair, the guy gets out his iPad and he starts ordering the part using a schematic diagram that he's just replaced in my fridge. And I actually said to him, “So, what are you doing there?” And he said, “Yeah, I've got this software from my supplier and it's really the best software on the market because as soon as I finish my job, I can reorder that product. I can tell them it's a warranty job. They'll send it to me for free, I get my van replenished. And in most cases arrives, it arrives the next day.”
So, I actually had a look at the software he's using and I was quite chuffed to see it was actually our software and it was one of our customers. So, I didn't actually realize that the repair of the fridge was being done through a distributor that uses our software.
So, one of the cool things he said to me was that at the end of the day, he used to get home and he would then punch in all of those orders and(or) fax it away to get those re-ordered. And he would literally not get to see his family till 7 PM because he had to get all these in the next day. Otherwise, he'd run out of stock, any of them.
So, now that he just keeps those orders into the website, he can get them going. And he gets home. He can get home to his family or relax or whatever he wants to do. And I was pretty chuffed that our software has made a difference in somebody's personal life. I thought that was really good.
So, if you think about these types of customers, they're your bread and butter and often you've got to think about them as your bread and butter, in terms of cost to serve.
So, this is something we talk about often; cost to serve. It's pretty hard to implement a B2B eCommerce website and think you're going to get more sales out of them. B2B eCommerce websites are actually a way of streamlining the process between you and your customer. And that can help your customer, but obviously one of the benefits is cost to serve.
And if you think about these small customers and the way your business is structured, generally, what we find is that the 80 percent of the volume of your customer. So, let's say you've got 100 customers, 80 of those customers produce 20 percent of your revenue.
So, the message there is, let's say you do $100 million a year, 80 customers are going to produce $20 million revenue, 20 customers are going to produce $80 million in revenue. And there'll be some in between, obviously.
So, the key with those 80 customers producing 20 percent of your revenue is you've got to reduce your cost to serve on those customers. You can't be spending the same amount of money that you're spending to service the customers like Bunnings and the big guys; the big end of town.
So, this is where eCommerce websites, especially B2B eCommerce websites, come into play in that you can reduce your cost to serve on those customers.
3. So, then the third group I want to talk about is the middle-sized customer. So, they're the guys that aren't going to deal with you via EDI because they're probably not big enough to go and implement the EDI themselves and they're probably not big enough for you to warrant that you're going to sell to the media. Implementing EDI is general an expensive proposition for both sides. But they are going to order if you're using a purchase order.
They're using inventory management systems themselves. Often, they've got multiple stores and they'll generally be ordering off you by doing a purchase reorder report or something similar that comes up with, “This is how many I need to water for my supplier” and there might be pages and pages of those orders. It might be a five-page order. It could be a five-line order. But generally, it's all automated.
And they'll send you a purchase order using a PDF. They'll just email it off to you. There's no way these guys are going to get on your website and re-key that for you; there's just no reason for them to do that. If they send you that all of the PDF in an email, they're going to expect you to key that in.
So, you've got to think about how you can get those orders in your system as well. And there are systems out there called Order Automation Systems that will allow you to get them in. And in fact, one of the podcasts we're going to be doing in a couple of weeks is talking to the guys from a company called Lucy who do that very thing. And they have got some great wins on the board in terms of getting those orders through the system.
So, I guess my message is, in terms of manufacturing and distribution, don't measure your success by the percentage of orders that you're getting through the website. A B2B eCommerce website is so much more than just getting orders. We've got customers that get 20 percent of the orders through the website, 50 percent EDI and 25 percent through their automation software.
So, that's 95 percent electronically. The cost to serve savings in those scenarios are significant. And it allows you to invest those funds in other areas or to just simply reduce your cost to service.
So, that's a wrap of B2B MD (Manufacturing and Distribution). I think you'd pretty much know if you fit into that category.
B2B for Business Use
So, the next thing I want to talk about is B2B BU and that's B2B for Business Use. And that's where one business is selling to another business and that other business is using those products to run their business. Sometimes it's called MRO (Materials, Repairs and Operations), but I sort of classify MRO as being more in the mining industry.
If you think of business use, you can think of companies like office supplies, electrical supplies, personal protection and equipment (They call that PPE) spare parts. The key to this sort of selling is that your buyer is not going to sell their product. They're not going to inventories it. They're going to use it in their own business. They just want to buy.
So, the way you would sell to these customers is completely different to the way you would sell to a B2B MD customer. Because they're there to buy the product. They have completely different business rules, including sometimes approvals for those purchases. So, you need to be cognizant of that and make sure that your system is set up to handle that.
The types of customers can span from very large customers to very small customers. You know, if you think about business, everybody needs to buy stationery; you just can't go without it. You can go without a lot of it these days, but the reality is you can't go without most of it.
So, the difference between the small customers and the big customers is not whether they order online or not or use EDI, but more about the business rules they have for ordering online.
For instance, when our business, a company of nearly 50 people, when we want stationery, we just get onto our office products suppliers, which I can proudly say as a company called OfficeMax who are one of our customers. And we just order straight off their website. We don't need approvals and those orders just go straight through. When larger businesses order online, they're going to need approvals.
We have a lot of customers in the PPE business, which stands for personal protection equipment. So, they're selling things like high viz jackets, work boots. Australia's got a lot of mining companies down here and PPE is a key part of their workforce needs.
So, if you ever been to one of the airline lounges in Perth here in Australia, which is where the majority the mining is done, half the people in there are wearing what's called the High Viz. So, they've all got the bright yellow or bright orange shirts on and the work boots and all of that sort of stuff.
So, when one of these large companies like BHP, Rio Tinto, Fortescue Metals, when they want to order PPE for their workers, they need to ensure their business rules are followed. Otherwise, there may be safety compliance issues at their facilities or they could find that staff, because they've got so many staff.
Some of these companies have got tens of thousands of staff and sometimes they don't work for the company for that long because it's based on when a mine is being built or something like that. So, a lot of a lot of contract workers and stuff like that. Therefore they want to make sure that that purchasing isn't being abused by those staff and they're getting products that they're not allowed to have.
So, in terms of business rules, it's about more than just Approvals. A really good example I heard the other day:
On a mining site. And I could never work out why, but one of our customers said, “Look, all of these mine sites, they'll only want to get one colour PPE high viz jacket or whatever for the mine. And generally, PPE comes in high viz orange or high viz yellow. And they wanted to not only restrict the products they could see, but even restrict the colour of the products they could buy.
And I actually found out the other day why this is. What they'll do in a mine site is that all of the staff will have one colour high viz an all contractors will have another colour high viz. So, it makes it super easy for anybody walking around the mine without having to look at somebody’s ID badge as to whether they’re a staff of the mine or contractors to the mine.
That's a really good example of some of those really specific business needs that some of your large customers are going to want to do. And the reality is that they just won't deal with you unless you can pull that sort of stuff off. So, the more of these features you have in your toolkit, the better you're going to be being able to service and to sell to these large customers.
So, some of these customers don't even want you to check out on your site. They want to use a technology called PunchOut. Go ahead and google "PunchOut" - you'll get some good diagrams of what it does.
This essentially allows them to come from their ERP system and in general, it's an ERP system like SAP. You'll find certainly all the large companies here in Australia; mining companies, telcos, all of that; they're all using SAP.
They'll want to go to the SAP SRM module Supplier Relationship Management. They'll say, “I want to go and buy some PPE.” They'll click on a button. That will then punch them out and take them to the B2B eCommerce website they want to buy from. Then all of those business rules kick in about what they can buy, what they can't buy.
They may not even see pricing. Pricing may not be something that the buyer is seeing or the requisitioner are seeing. Because when they go to check out, it's not going to check out like the traditional checkout where you'll confirm that order and then that order gets integrated into your ERP.
What happens at the end of that checkout is that that gets sent back to SAP as a requisition. So, sort of like by magic, they've gone to your website, put stuff in their cart, pressed a button at the end and magically that has now appeared as a purchase requisition in SAP.
And what that allows them to do then is it allows that large company, your customer, to control the authorisation process that those products have got to go through.
Now, you might say, well, I've got authorisation rules on my website. Why don't they use that? The reality is these companies are dealing with hundreds of suppliers and they don't want all of those suppliers to have to maintain all of the user ID of all of their staff that are coming and going, they don't want to have to maintain all of those business rules and rely on the supplier’s functionality to do that.
They just want to use your eCommerce site to get those products, bring them back into their own ERP system as a purchase requisition and then follow the yellow brick road of purchase authority, purchase authorization.
And then what they'll do is at the end of the day, they'll send you their order, either as an EDI order or they'll actually just send you an email as a PDF order and then those order automation tools can consume those up.
So, it's a very important distinction, in terms of PunchOut, very important if you want to play at the big end of town to have PunchOut capability.
The other example, these sorts of B2B websites need to be able to support customers. And again, these don't have to be big customers that have got complex business rules. You don't have to be a big company to have complex business rules. We’re a company of 50 and we've got a lot of complex business rules within our own business, certainly around source code control and who can authorize different things in terms of jobs and things like that. So, you don't have to be a big company to have complex business rules.
And one of the business rules that a lot of customers want you to do is to limit the amount of products their staff can see. And a really good example is this, the hospitality industry. We've got a lot of customers in the hospitality industry as well.
And if you take that example of, I'm a bar staff and at the end of the night, we've had quite a few breakages; maybe a fight broke out in the bar or something like that. So, we've got quite a few glasses breakages and I want to reorder those breakages. So, I get on my supplier's website. But if you look at glass, it's pretty hard to tell, even from an image, which glass that is or what model it is or what range it is or even what size it is.”
So, the size is probably pretty obvious to a bartender, but the things like what range it is, is pretty hard to tell. Often, they're not written on the glass.
So, what often happens is that that supplier’s B2B website is going to set up what's called a limited or a custom catalogue for that supplier to buy from. And that means the staff can get in and they'll just see Beer Glasses and they're all the beard glasses they sell and they're the ones that these bars stock.
And you could even have a different custom catalogue for different areas of that organization. So, you might be selling to, let's say, one of the casinos here in Australia. And typically, they're going to have four or five different types of bars. They'll have the high-end bars for the high rollers and then they'll have your entry-level bar. Same with restaurants, that sort of stuff. So, the sort of glassware that you're using in a high-end bar is very different to the sort of glass you're going to be using in the lower-end bars.
So, it's not necessarily customer-based; it might be user-based, it might be catalogue-based. And that's another good example of how you can customize and personalize that offering to your B2B customer so that they get the best out of your B2B website. They want to get on and use it. It's easy for them to use.
So, just to wrap up, I really see that there's two different flavours of B2B. As I mentioned, B2B for Manufacturing and Distributing and B2B for Business Use. You might be a combination of both, but it's super important to make sure you understand what your goals are and what functions you need as it will differ based on your flavour.
At the end of the day, if you understand what your customers’ needs are, you can't go wrong.
One of the podcasts we're going to be doing is an implementation podcast. And a lot of that focuses around the people in your organization you should get involved. And I'm going to suggest salespeople because salespeople know your customers very well. And at the end of the day, if you make it customer-focused, you can't go wrong.
So, that's it for this month. I hope you got a lot out of the podcast. Watch out for some LinkedIn posts on the next podcast. We'll put them up on LinkedIn.
And if you want to get in contact with me, you can do this by emailing andrew [at] commercevision.com.au or just search Andrew Rogencamp on LinkedIn. I'm literally the only Andrew Rogencamp in the world. So, I'm pretty lucky there.
Next week's show, we're talking to a gentleman called Jason Anderson and he's from a company called Andzen - they're specialists in email marketing. So, they really help customers get the most out of their email marketing and help customers integrate email marketing products into their eCommerce systems.
So, that'll be a really interesting chat to him to get an understanding of how email marketing can give you really good bang for buck in your eCommerce offering.
Jason Anderson: I think ultimately email is still that central thing that every customer has. As soon as you create your persona on the internet, the first thing you do is create an email address, so you can get on social media, so you can do everything you need to do. That e-mail address really is like your physical mailbox in your house.
And for as long as having an email address is that central to your existence online, email is going to be that primary channel. But it just allows you to do so many other things when it comes to tracking and managing the data that you hold on a client and having that assigned back to a unique identifier. You know, it's almost always email.
You talk about ROI, most e-mail platforms are affordable compared to what you would need to spend to have a really strong typical funnel.
Andrew: So, again, thanks for listening. All the best. I hope you have a great month and we'll speak to you next month.
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